By Don MacGillivray
Portland’s housing crisis is now seven years old and the nation is waking up to the same reality.
Even before the 2008 recession, the US saw a reduction in the number of units being built. Before the year 2000, 1.5 million homes and apartments were built each year.
Since 2000, the rate has dropped to 1.2 million units per year, resulting in a deficit of approximately six million homes. Ending the housing crisis would require the construction of two million units each year for seven years.
Portland has no lack of plans for housing. The 2008 Portland Comprehensive Plan clearly spells out the city’s housing goals and policies. In the late 1980s The Comprehensive Housing Affordability Strategy (for federal funding) again delineated over 60 housing goals and objectives.
In 1989, The Portland Housing Authority, Home Forward, developed a plan to end homelessness by 1992. In all cases, the plans exceeded the ability to implement them.
Significant funding has been approved in recent years so new affordable housing is in the pipeline, but it is expensive. $1 million will only purchase four to six new housing units.
The rising cost of housing is a long and complicated story. Real estate development is a risky business. There are many things that can increase the cost of a project. Land is scarce in cities and becomes even more expensive.
The costs of labor and materials, especially lumber, are also increasing as are government fees, permits and regulations. Interest rates and inflation can increase the cost of financing housing projects.
Labor is the biggest issue of the housing industry despite adding thousands of new construction jobs each month. New homeowners often want a state of the art home with new appliances and technological advances.
The lack of homes on the market has caused an extreme escalation of prices. With many buyers seeking the same property, the highest bidder wins.
Home buyers’ wages have stagnated at the same time housing prices have increased. This results in younger, first-time buyers and others with fewer resources being unable to purchase the home of their dreams.
Many home buyers are subsidized through the federal home mortgage interest deduction, the largest federal housing subsidy. More money goes to homeowners through this subsidy than any of the housing programs designed for those who can’t afford housing.
When homes increase in value, surrounding homeowners benefit. Those who have owned their homes for many years are enjoying substantial gains in wealth.
With the increase of real estate values, rents are rising and home prices escalate. Businessmen and corporations are combing undervalued urban neighborhoods in large cities to find older buildings to renovate and modernize. This removes affordable housing from the market and displaces their occupants. It is happening especially in San Francisco, New York City and here in Portland.
Limited liability companies and shell companies are often involved in the secret, clandestine acquisition of properties for outside investors and private equity firms. Much of this housing will no longer be affordable for those earning below a median income.
The housing crisis affects not only low income and homeless populations, but its ill effects extend well into the middle class.
Young people getting started, the elderly, the disabled and those of diverse ethnic origins are affected by the lack of affordable housing. Those that pay more than 30 percent of their income for rent are known as rent burdened. This designation applies to more than 50 percent of renters earning less than $35,000 annually.
The federal government has, over time, reduced its involvement in providing affordable housing. Beginning during the Reagan administration, many federal housing projects were closed and or downsized.
With the reduced role of government, the private market is left to provide housing. Their incentive is profit-oriented with little thought given to affordability. Luxury and work force housing is not affordable to the 25,000 Portlanders that can’t afford rents exceeding $500 per month.
Because housing production is complicated and expensive, the nation’s housing crisis is an enigma. It would help tremendously if the development process were simpler, shorter, more transparent and supported by the public. Manufactured housing might be an answer.
If the private housing market won’t do the job, is government the alternative? The mistakes made with public housing can be avoided. The Section 8 rent subsidy programs are successful, but are only able to provide for 25 percent of the demand.
What is needed is a dramatic increase of mid-range, affordable dwellings in full service neighborhoods.
This could attack the housing affordability problem directly if they were constructed by government-owned municipal housing developments. Where it is socially needed, it would attract a diverse clientele and provide most essential services.
European cities in Sweden, Finland and Austria have been doing this for years with positive results. Direct government action, if well-planned and carried out, can complete the work better, faster and more economically.
President Biden’s infrastructure bill includes $332 billion for housing investments including $200 billion for rental assistance, $70 billion to repair and preserve public housing and $45 billion to build homes affordable to people with the lowest incomes.
The goal is that the funding will provide low-income renters and ethnic minorities with stable, affordable homes. Time will tell if turns out to be significantly impactful to solving the housing crisis.